Winter sports lift Head sales

An acquisition and an uptick in winter sports sales have enabled Head to improve its sales and to reduce its loss for the first half of this year. The Austrian company estimates that it will gain share in a declining winter sports market in the upcoming season.

Head's sales increased by 2.0 percent to €136.9 million for the first six months of the year and they would have increased by 4.2 percent in constant currencies. The group's adjusted operating loss of €8.1 million was less than €8.8 million for the same period last year. Its net loss narrowed to €8.9 million, against €9.6 million for the first half of 2013.

The sales increase was driven by sales of winter sports products, which climbed by 6.5 percent to €23.7 million. The first half of the year is not the most important for this part of the business, as it mostly consists of close-out sales and some deliveries of bindings under contract manufacturing agreements for the upcoming season. However, as the pre-ordering season for this winter has almost come to an end, Head predicts that the winter sports market may decline, but that Head may gain market share in some countries. The company said the market had been influenced by the weather in the prior season, with abundant snowfalls in the southern parts of Europe and the U.S. but warm weather in central and northern Europe, which are core markets for Head.

Head's racquet sports sales slipped by 1.1 percent to €80.5 million for the six months, due to unfavorable exchange rates as well as the tightness of the market, which led to a decrease in the number of racquets sold. The number of tennis balls sold remained roughly stable, as an increase in the second quarter made up for a decline in the first quarter.

When it comes to the diving division, focusing on the Mares brand, its turnover advanced by 3.0 percent to €29.3 million for the half year, owing to the acquisition of the SSI Group. Excluding that, sales of Head's diving division dropped due to adverse conditions in some markets, such as the poor weather in southern Europe and political turmoil in the Middle East.

Sportswear sales moved up by 1.7 percent to €3.3 million. Winter and summer apparel sales both increased but the impact was reduced by a decline in sales of sports bags in the U.K. Licensing sales soared by 40.5 percent to €3.8 million.

This ample increase helped to lift the Austrian group's gross margin by 3.4 percentage points to 44.3 percent for the six months. Another favorable factor was the lower cost of sales for Head's bindings, tennis balls and diving business. On the other hand, the half year included increased costs of €5.1 million, mostly due to the inclusion of the SSI Group and more advertising for winter sports products.

For the second quarter alone, sales were up by 2.5 percent to €66.2 million, with increases of 1.7 percent for winter sports, 0.6 percent for racquet sports, 8.1 percent for diving and 4.5 percent for sportswear, while licensing revenues slid by 18.1 percent. The adjusted operating loss widened to nearly €4.9 million for the quarter, compared with €4.1 for the same three months in 2013.

The deterioration was worse for the reported operating loss: It reached nearly €4.8 million in the second quarter of this year against €3.7 million for the same quarter last year, taking into account reduced income from the company's share option scheme. The company ended the quarter with a net loss of almost €5.6 million, almost exactly €2 million more (in the negative) than the same period in 2013.

Given its current order book, the company predicts a recovery of its winter sports business. Along with the acquisition of SSI, this should lead to a modest increase in sales for the full year. However, the operating results are expected to be broadly at the same level as in 2013, due to currency exchange rate changes, more marketing and investment costs.